Some advice on the mortgage renewal letter from your bank

Whatever you do, DO NOT sign and return the mortgage renewal papers you received from your bank. That is, don’t until you’ve received guidance and advice from a mortgage professional.

This is because banks will often send you renewal offers with their absolute worst interest rates hoping that you’ll simply sign and return them without looking into your options.

Here’s a case study that will show you what you stand to lose by not looking into your options when it comes time for your renewal. This is a real example that we recently came across:

The clients have a mortgage with a national chartered bank in Canada. They have an outstanding balance of $190,560.57 on their mortgage and it matures on February 11, 2011. They have 19 years remaining on their mortgage.

The renewal letter states “we are pleased to offer to renew the terms of your mortgage. The renewal options available to you are outlined below…Please initial next to the term you prefer and return this form to us…”

            The terms they have been offered are as follows:

                        1 year closed @ 3.35%

                        2 year closed @ 3.60%

                        3 year closed @ 4.15%

                        4 year closed @ 4.94%

                        5 year closed @ 5.19%

                        5 year variable @ 2.85%

Here are the terms they would have available to them if they speak to a mortgage professional:

                        1 year closed @ 2.60%

                        2 year closed @ 3.20%

                        3 year closed @ 3.45%

                        4 year closed @ 3.59%

                        5 year closed @ 3.69%

                        5 year variable @ 2.25%

Upon speaking to a mortgage professional, they decided that they would like to refinance into a 5 year closed mortgage at 3.69%. Here’s how much money they saved versus their banks offer of 5.19%:

@ 5.19% their monthly payment would be $1,310 and they would owe $156,781 at the end of 5 years

@ 3.69% their monthly payment would be $1,161 and they would owe $152,454 at the end of 5 years

A savings of $149 a month for the next 5 years means our clients will have an extra $8,940 in their pockets. In addition, they will owe $4,327 less on their mortgage!

           

On an interesting note, upon discovering the extent that they would be saving the clients received a call from their bank asking if they had any questions about the their renewal options. They were told that their bank could most likely match the 3.69% rate only AFTER they mentioned it first. By this time they were so thoroughly disgusted by their banks’ behaviour that they told their bank thanks but no thanks.

As a mortgage professional, it is our job to work for our clients. We tell you the best interest rates and options available to you from the beginning and we keep looking out for you from that moment on.

That’s why we urge you to look into your options before renewing because simply signing your renewal letter could likely turn out to be a very costly mistake.